Fixed Bonus to Be Included in Ordinary Wage, Supreme Court Rules

"Fixed bonuses" should be included for purposes of calculation of "ordinary wages," the Korean Supreme Court ruled March 29, 2012, which is in contradiction to previous court cases as well as the Ministry of Employment and Labor's position. Therefore, if a company's compensation structure includes elements other than the base salary (such as fixed bonuses), the company may need to revisit its current practices to confirm whether or not the new Supreme Court case will result in unanticipated higher employment costs.

Since the statute of limitations on a wage claim is three years, it is possible that employees may file a suit claiming their unpaid statutory benefits unpaid for those past three years.

The term "ordinary wages" means hourly wages, daily wages, weekly wagers or monthly wages which are determined to be paid periodically and uniformly to a worker for his/her labor. According to the Court's rationale, (i) the fact that the fixed bonus was being paid every quarter alone does not automatically exclude it from ordinary wages and (ii) if the collective bargaining agreement intended to give pro-rata payment to the employees who leave the company during employment, the payment was a fixed wage which was determined to be paid periodically and uniformly and may be included in ordinary wages. In previous court cases, bonuses involving very similar features were deemed not to be included in ordinary wages.

It seems that the court is looking to expand the scope of the ordinary wage, which will directly impact calculation of other statutory benefits such as compensation for overtime work (including nighttime work and work during days off) and compensation for unused annual paid leave. It will also impact calculations for retirement benefits under the Employee Retirement Benefit Security Act.